What is Principle of Polarity?
'Price itself is the most important and reliable indicator'. If you can master the art of understanding price action, you are good to go. However, to understand the price action, the single most important concept you must grasp is the Principle of Polarity. This is the most widely applicable principle in the field of technical analysis. The polarity principle is also extremely simple and easy to understand. But before we get our hand on this principle, we must understand what are support and resistance.
Support is a level in a declining market trend where there is a temporary halt due to more buying pressure than selling pressure. These are the troughs in the market. They are reaction lows where the demand overwhelms the amount of supply. Since there is enough buying pressure here to overcome any selling that there might be at this level, the result is a pause in decline where prices then reverse back up again.
Resistance is the exact opposite of support. Resistance is a level in a rising market where there is so much more selling pressure than buying pressure that there is a temporary halt in the uptrend. These are the Peaks in the market, or reaction highs where supply exceeds demand. Since there is enough selling pressure here to overcome any buying, prices stop rising and reverse back down again. A break above resistance is considered to be bullish while a break below support is considered to be bearish.
The Principle of Polarity states that once a Resistance level is breached, it changes its nature and becomes Support the next time it is approached. This happens due to change in Demand and Supply.
Why to buy Britannia Industries?
Technical analysts use support and resistance levels to identify price points on a chart where the probabilities favour a pause or reversal of a prevailing trend. Market psychology plays a major role as traders and investors remember the past and react to changing conditions to anticipate future market movement.
Britannia is currently trading near the demand zone and chances of bouncing back by taking supports are very high. Principle of Polarity suggests a buying opportunity near immediate line of support standing around Rs 3,330 mark. At the same time, it is also trading above 50 SMA which is also conductive for bullish momentum. Above mentioned technical rationale suggests buying opportunity in the stock.
Figure.1. Principle of Polarity and Buy signal on Britannia
As per the above-mentioned chart, one should book around recent swing high which is placed around Rs 4,000. One can consider profit booking near the target zone around Rs 3,900 and higher side towards Rs 4,000 mark.
The entire bullish view negates on a breach of the previous swing low and in the case of Britannia, we will consider Rs 3,200 as a stop loss level closing basis.
We recommend buying Britannia Industries around Rs 3,375 with a stop loss of Rs 3,200 for higher targets of Rs 4,000 as indicated in the above chart.
Disclosure: Narnolia Financial Advisors Ltd. is a SEBI registered Research Analyst having SEBI Registration No. INH300006500. The Company/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.